Postwar Allied-Swiss Negotiations

Early in 1946, the United States, Britain, and France invited Switzerland to send representatives to Washington to discuss the issues flowing from the Paris Reparations Conference. The urgent desire on the part of Britain and France to revive commerce with Switzerland after the War made them reluctant to join in tough economic measures against Switzerland and caused serious policy differences with the U.S. For its part, Switzerland held to its own interpretation of international law and would not accept Allied claims to German assets and monetary gold in Switzerland. Within the U.S. delegation headed by senior Treasury official Randolph Paul, differences arose from the outset between the more cautious State Department approach and Treasury Department officials who advocated a strong line against the Swiss and the use of sanctions if negotiations failed. On the eve of the negotiations, Secretary of State Byrnes, acting on the counsel of State Department colleagues, turned aside Treasury advice to use the full force of economic sanctions in order to change Switzerland's stance.

From the outset of the negotiations in early March 1946, U.S. chief negotiator Paul made clear that the basic objectives of the negotiations with the Swiss were to forestall a Nazi resurgence by eliminating German assets in Switzerland and to make these assets available for reparations and European reconstruction. After more than a month of exchanges, the Allied-Swiss negotiations had gotten nowhere. The Swiss rejected Allied claims to monetary gold sold by Germany to Switzerland during the War as well as to German assets. They refused even to acknowledge that they had received any looted monetary gold during the War, an assertion they reversed some time later. The Swiss asserted that as a conquering nation, Nazi Germany had in any event a valid claim of ownership under international law to gold it had looted as war booty from European central banks. The Allies, uncertain of the legal basis of their claims to German external assets under international law, instead appealed to the moral conscience of the Swiss. They pointed out that liquidated German assets were intended for the reconstruction of war-torn Europe and, at least in part, for the relief of the desperate "non-repatriable" victims of Nazism. Still, the Swiss held fast and suggested that the impasse be referred to international arbitration.

On the eve of the Washington negotiations between the Allies and the Swiss, State and Treasury Department officials estimated that up to $579 million of monetary gold ($5.6 billion today) had been looted in Europe by the Nazis and that Germany shipped around $400 million in gold to Switzerland during the War. The State Department estimate in the Fletcher Report was that of this amount, $276 million in gold was sold by Germany to the Swiss National Bank and an additional $138 million was "washed" through the Swiss National Bank and eventually reexported to Portugal and Spain. Of the $276 million in gold that the State Department estimated that Switzerland purchased from Germany, it concluded that "the larger part was looted gold." State also concluded that part of the gold that Switzerland sold during the War to Portugal and Spain could have been looted gold. Using different calculations, Treasury officials estimated that Switzerland likely received $289 million in looted gold.

The Allied negotiators at the Washington conference began with an estimate of at least $200 million and as much as $398 million in looted monetary gold in Switzerland at the end of the War. But in the face of Swiss intransigence and the Allied interest in resuming commercial relations with Switzerland, as well as a new postwar U.S. emphasis on rebuilding war-torn Europe, they reduced their negotiating position first to $130 million ($1.3 billion in today's gold values)--the amount of the Allied estimate of the looted Belgian central bank gold. In late April 1946, the Allies sought to break the stalemate with a proposal calling for Switzerland to provide $130 million in monetary gold and giving the Allies two-thirds of the revenues from the liquidation of German assets in Switzerland. The head of the Swiss delegation, Walter Stucki, responded by breaking off the negotiations. The amount the Allies sought was then reduced to $88 million, the amount of looted Belgian gold ultimately acknowledged by the Swiss.

American negotiator Seymour Rubin blamed the debacle on the intransigence of the Swiss negotiators over the amount of gold to be turned over to the Allies. Acting Secretary of State Acheson was briefed on the situation. American intelligence reports confirmed the
inflexibility of the Swiss negotiating position on the basis of instructions from the government in Bern.

Throughout the discussions, the Swiss negotiators stood on their interpretation of international law and Swiss law. They showed little inclination to accept Allied arguments about the practical need or moral obligation to return to war-ravaged Europe some substantial portion of the profits they had earned in wartime commerce with Germany. The U.S. Government was reluctant, as were the Allies, to bring economic sanctions to bear in order to alter the Swiss response. Thus, American negotiators were left to pursue the fundamental Safehaven goal of preventing the resurgence of Nazism at the expense of some more meaningful Swiss contributions to early restitution and assistance for war-ravaged Europe.

The negotiations resumed in early May 1946 with a two-fold Swiss proposal. One part provided for a Swiss payment of $58.1 million for the monetary gold in Switzerland ($566 million today). The U.S. Government decided to accept this $58 million figure based on the fact that it was two-thirds of the $88 million amount the Swiss conceded they had in looted Belgian gold. This, however, was far less than the $200 million presented by State and Treasury at the opening of the negotiations, and even less than the $278 million estimated by the State Department's in-house Fletcher Report to have been the amount of gold Switzerland had purchased from Germany.

The second part of the agreement was to divide the results of the liquidation of German assets on a 50-50 basis. U.S. estimates of German external assets in Switzerland ranged from $250 million to $750 million ($2.1 billion to $6.1 billion today), compared to $250 million conceded by the Swiss. No total amount of assets was agreed to, nor would the Swiss give the Allies control over the identification of the assets.

The American negotiators sought the advice and concurrence of the relevant cabinet-level officials. Randolph Paul and his delegation discussed the negotiations and the final Swiss proposal with Secretary of Treasury Vinson, Secretary of War Patterson, Senior Assistant Secretary of State Clayton (who claimed to speak on behalf of Secretary Byrnes), and with Senator Harley Kilgore. Paul sought to find out if the U.S. Government leadership wanted to resort to economic sanctions to achieve a better agreement. According to records of these meetings, all the top officials commended the American negotiators (although Senator Kilgore, who was initially assured by U.S. negotiators that Switzerland was surrendering two-thirds of the "fairly provable" looted gold in its possession, was shortly to change his mind) and recommended acceptance of the Swiss proposal, rather than applying greater pressure on the Swiss. After the British and French Governments had also agreed, the Allied-Swiss Accord was signed in Washington on May 26, 1946 in the form of a text with a number of side notes, including a commitment by the Swiss to look "sympathetically" at assisting stateless victims through the recovery of heirless assets for their benefit.

Cabinet-level support of the Allied-Swiss (Washington) Accord was soon reinforced by the White House. Several days before the signing of the Accord, Senator Kilgore addressed a sharp letter to President Truman noting the various high estimates used by American negotiators, strongly protesting the poor terms of the agreement, and asking that negotiations be broken off and the issue taken to the United Nations. Truman acknowledged Kilgore's letter but turned to Secretary of the Treasury John Snyder (who had succeeded Vinson in May, after the signing of the Accord). Snyder rejected Kilgore's arguments. In early July, Snyder drafted a letter for President Truman to send to Senator Kilgore strongly endorsing the agreement. Mid-level State Department officials drafted a letter for Acting Secretary Dean Acheson to respond in similar fashion to a well-publicized message from Congressman Joseph Baldwin in August 1946. Both Senator Kilgore and Congressman Baldwin asked President Truman why government negotiators had settled for so little when the Swiss had acquired $300 million in looted gold during the War. On behalf of the State Department, Acheson stated that "there was no reasonable evidence that Switzerland had purchased $300 million of gold looted by Germany," despite government analyses to the contrary. In addition, in a letter of July 3, 1946, President Truman assured Senator Kilgore that "of the amount of looted gold purchased from Germany, about two-thirds of the amounts fairly provable will be returned by the Swiss." The reality was that far less was returned.

Almost immediately after signing the Washington Accord, the U.S. Government began the process of unblocking frozen Swiss assets in the United States. At the same time, serious problems arose between the Allies and Switzerland over Swiss implementation. Before the Swiss would be willing to proceed with the liquidation of German assets, they insisted the Allies would need to establish a fair Reichsmark-Swiss franc rate of exchange. Until agreement on the exchange rate was reached, the Swiss would make no payment to the Allies for distribution to the Inter-Allied Reparations Agency (IARA) for reconstruction to the International Refugee Organization (IRO) to benefit stateless victims. Because of such differences, the Swiss implemented only the first part of the agreement, that dealing with monetary gold. They promptly paid the required 250 million Swiss francs ($58 million) in gold into the Tripartite Gold Pool. But it took until 1952 to reach a final agreement on the terms and procedures for the liquidation of German external assets.

Between 1947 and 1951 there was no resolution of the exchange rate Issue, and the Swiss raised a series of new impediments to progress. These impediments included a demand that the U.S. unblock the assets of German companies seized during the War but which the Bern government claimed were actually Swiss-owned. Switzerland also raised concerns about the precedent of expropriating German assets and insisted that owners' rights be protected through some guarantee of compensation. As a result of agreement on various exempted categories between Allied and Swiss negotiators, the sum of German assets was reduced from $230 million to $115 million. After initially refusing to make any advance to the IRO, the Swiss offered to advance up to 50 million Swiss francs ($11.7 million) as called for in the 1946 Accord. However, the U.S. rejected this offer, fearing that acceptance would remove all sense of urgency regarding the larger issue of Swiss liquidation of German assets. Ultimately, under pressure from members of Congress and others, the U.S. convinced the Allies to accept a 20 million Swiss franc ($4.7 million) advance in 1948. When the Allies renewed their interest in 1949 in obtaining additional sums for the benefit of the refugees, however, the Swiss refused to make further transfers pending the settlement of other outstanding issues from the Washington Accord.

State Department officials in Washington came to believe that the Swiss never intended to implement the agreement. They believed the agreement was "unworkable" and the cause of "difficulties" in U.S.-Swiss relations. Moreover the 1946 Accord was creating difficulties in U.S. relations with the new West German state under Konrad Adenauer. State Department officials feared that the payment of compensation to German owners of liquidated assets in Switzerland would lead to pressures from many different German groups for compensation for other wartime losses, thereby creating an onerous burden on West Germany's budget. Thus, American officials questioned the wisdom of complicating U.S. relations with Germany in order to extract a few more francs from Switzerland. In the fall of 1950, U.S. negotiators proposed to their Allied colleagues public rejection of the 1946 Accord as unworkable and Allied withdrawal from its implementation. The British and French strongly resisted such a course of action, needing the hard Swiss currency the Accord would provide. The Accord remained in force, but unimplemented.

After several failed attempts, the Allies and Switzerland finally agreed in the spring of 1951 on revised terms for the 1946 Accord. The new West German Government became a key figure in these negotiations even as it began a long series of actions to attempt to compensate Jewish victims of Nazism. Direct German-Swiss negotiations were undertaken which took into account Germany's wartime external debt to the Swiss and other efforts to compensate its own citizens. An Allied-Swiss agreement was finally reached in August 1952, which called for a lump-sum settlement of 121.5 million Swiss francs ($28 million)--$170 million today--for liquidated German assets in Switzerland. This $28 million was far less than that foreseen in the 1946 Washington Accord. This final lump sum settlement was reduced by the amount of the 1948 advance payment made by Switzerland to the IRO--20 million Swiss francs ($4.7 million)--making the total 1952 payment 101.5 million Swiss francs ($24 million). Of this $24 million, the Allies first allocated another $3 million to the IRO. Later, when Portugal's contribution was not forthcoming, the Allies allocated another $3.5 million to the IRO. This left approximately $17 million, which went to the IARA for reconstruction and reparation. As part of the German-Swiss agreement of August 1952, West Germany agreed to reimburse Switzerland for the 121 million Swiss francs it had settled upon with the Allies, and arranged Swiss financing to meet its commitment. Thus, over six years after the 1946 Washington Accord, this 1952 agreement was effectively paid for by Germany.

Switzerland's aggregate contribution to war-shattered Europe, including the $58 million in monetary gold paid out in 1946 and the final settlement in 1952 of $28 million from external German assets, amounted to about $86 million. On monetary gold, this contribution contrasted with State and Treasury Department estimates ranging from a minimum of $18 to $289 million in looted monetary gold; with the evidence of at least $200 million presented by the Allies at the outset of the negotiations to the Swiss, and with the $130 million the Allied negotiators informed the Swiss they were liable to restore to the Allies during the course of the negotiations (representing the value of the looted Belgian gold alone). On German assets, it contrasted with a range of $250 to $500 million in total German assets that the U.S. estimated to be in Switzerland at the beginning of 1946. Switzerland did provide substantial trade credits to European nations in order to restore commerce. However, all of this must have been overshadowed, at least in the eyes of the Allied negotiators, by the more than $12 billion in Marshall Plan assistance that the United States had by 1952 poured into rebuilding Europe's economy.

The willingness of American policy-makers during the War to benefit from Swiss neutrality, while tolerating Swiss resistance to Allied economic demands, was matched in the early postwar period by growing U.S. and Allied acceptance of actions by the Swiss and other neutral nations in the overriding interest of postwar recovery and European unity. The onset of the Cold War, the immediate need to contain the Soviet Union, and the need to support a democratic West Germany allied with the West put a premium on new security considerations. This imperative also limited the willingness of the United States to press the neutrals on unresolved Safehaven and restitution issues, and diminished the leadership role that America had taken during the wartime in this arena.

Source: The United States State Department
This document is in the public domain.